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V.M. Salgaocar & Brother Pvt. Ltd., Versus The Asst. Commissioner of Income Tax, Cir. 2, Margao Goa.

2015 (4) TMI 1108 - BOMBAY HIGH COURT

Deduction allowable under Section 80HHC - determination of profit - Held that:- Part C of Chapter VI-A of the said Act provides for deductions in respect of the certain income and one of such Sections which fall within the said part is Section 80HHC which provides for deductions in respect of the profits determinable by the assessee from the export of goods or merchandise. Sub Section (1) of Section 80HHC as it stood then provides that the profit that an assesse Indian company engaged in the bus .....

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dology as provided in Section 80HHC(3) has determined the profits derived from the export of goods or merchandise as far as the appellant is concerned to be a sum of ₹ 19,92,39,981/-. Once the respondents themselves have arrived at the said figure after applying the methodology as provided in Section 80HHC(3) of the said Act, such amount of deduction has to be allowed. But however, taking note of the provisions of Section 80A(2) referred to herein above, such deduction has to be restricted .....

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Section 80AB of the Act, as the appellant is claiming deductions on its export profits alone, which is included in computing its gross total income. Section 80HHC (3) was introduced when the provisions of Section 80AB were already on the statute. Even upon reading the provisions of Section 80AB of the said Act, the determination of the amount as provided therein would have to be effected for the purpose of computing the deductions under each of the respective sections specified in Part C of the .....

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total profit of business in a sum of ₹ 17,40,33,719/- is not at all justified. The restriction is on the gross total income of ₹ 19,78,94,900/- and as such we find that the restriction effected by the Assessing Officer on the deduction is not at all justified. - TAX APPEAL NO. 25 OF 2007 - Dated:- 22-4-2015 - F. M. REIS & K. L. WADANE, JJ For the appellant: Mr. Percy Pardiwalla, Senior Advocate with Mr. A. F. Diniz, Advocate For the respondent: Ms. Asha Dessai, Advocate JUDGMENT .....

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77; 17,40,33,719/- ? 2. Whether on the facts and in the circumstances of the case and on a harmonious construction of Sections 80HHC, 80A(2), 80AB and 80B(5) could the deduction allowable under Section 80HHC be restricted to the extent of business profits and not to the extent of the gross total income as canvassed for by the appellant ? 3. Mr. Pardiwalla, learned Senior Counsel appearing for the appellant in support of the above appeal points out that the question in the present appeal is wheth .....

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Counsel further pointed out that there was a first round of litigation in connection with the amount which the appellant is entitled as a deduction in terms of Section 80HHC of Income Tax Act ( herein after referred to as 'the said Act') which this Court had partially modified the directions of the Tribunal though that aspect is not relevant for deciding the above appeals. The learned Senior Counsel further pointed out that thereafter the Assessing Officer by an order dated 05.06.2002 ga .....

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d Senior Counsel the gross total income was determined by the Assessing Officer was a sum of ₹ 19,78,94,900/-. The learned Senior Counsel further submits that the appellant was entitled to a deduction under Section 80I which he quantified at ₹ 1,95,298/- and under Section 80HHC which was quantified at ₹ 19,92,49,981/-. The learned Senior Counsel further submits that when it came to giving a deduction on the said amount, the Assessing Officer had restricted the deduction under S .....

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upon the judgment of the Andhra Pradesh High Court in CIT V/s Visakha Industries Ltd., 251 ITR 471, the Commissioner of Income Tax (Appeals) held that the deduction under Chapter VI-A is to be computed with reference to the profits of a particular undertaking and not with reference to the gross total income of the assessee. Being aggrieved by the said order, the learned Senior Counsel has pointed out that the appellant had preferred an appeal before the Tribunal which met with the same fate and .....

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in terms of Sections 70 to 74 of the said Act. The learned Senior Counsel further submits that the resulted figures are the aggregated and gross total income determined which is specially defined in Section 80B(5). Thereafter, according to the learned Senior Counsel in Chapter VI-A of the Act, the deductions are allowed and sub section (1) of Section 80A provides that in computing the total income of an assessee, there shall be allowed from his gross total income in accordance with and subject .....

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tion 80HHC provides for a deduction in respect of the profits derived from the export of the goods or merchandise. According to the learned Senior Counsel sub -section (1) as it stood then provides that where an assessee is an Indian Company engaged in the business of export out of India of any goods or merchandise, there shall be in accordance with and subject to the provisions of the Section in computing the total income of the assessee be allowed, a deduction of the profits derived by the ass .....

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e.f. 01.04.1981. By relying upon the Circular No. 281 of 1980 dated 22.09.1980 which has no application to interpret the relevant provisions of the said Act the learned Senior Counsel further pointed out that in the context of Sections 80IA and 80O of the said Act, this Court had occasion to consider whether the deductions under these provisions are to be restricted to the income under the head Profits and gains of business or profession or is to be allowed to the extent of the gross total incom .....

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pany Private Limited dated 18.10.2010 in Tax Appeal No. 3224 of 2009 wherein this Court has upheld the view taken by the Tribunal that there was no basis in law to restrict the deduction to the extent of the business income. The learned Senior Counsel further pointed out that the judgment of the Andhra Pradesh High Court relied upon by the revenue is misplaced as the High Court was concerned with a case where the assessee had an asbestos cement division in which it had earned a profit but had in .....

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ned Senior Counsel further pointed out that the Tribunal in para 8 of its order accepts that the deduction is to be allowed is to the extent of the profits and gains of export business but after having said so impliedly restricts it to the income assessed under the head profits and gains of business or profession overlooking that the profits and gains of the export business are computed by the Assessing Officer himself at ₹ 19,92,49,981/- and as such the appellants are entitled for a deduc .....

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its that the appeals be allowed and the substantial questions of law be answered in favour of the appellants. 4. On the other hand, Ms. Asha Desai, learned counsel appearing for the respondent has supported the impugned order. The learned counsel has taken us through the provisions of Section 80HHC of the said Act as well as the provisions of Section 80I to point out that the deductions which are allowed in terms of the said provisions are to be restricted to the profits and gains of income of t .....

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has rightly held that in case of deduction under Section 80HHC the incentive has been given to boost export activities and deduction should be restricted to the profits and gains of the export business as specified in the provisions of the said Act and not with reference to the gross total income of the assessee. The learned counsel as such submits that the substantial questions of law framed by this Court are to be answered in favour of the respondent. 5. We have considered the submissions of t .....

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at the aggregate amount of the deductions under this Chapter shall not in any case exceed the gross total income of the assessee. Reading the said provisions of the Act, one finds that the gross total income means the total income computed in accordance with the provisions of the said Act before making any deductions under this Chapter. 6. Section 80AB of the Income Tax Act then in force reads thus : 80AB. Where any deduction is required to be made or allowed under any section ( except section 8 .....

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ed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. 7. Section 80B(5) of the said Act defines the gross total income thus : 80B(5) gross total income means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter . 8. On going through the said provisions, we find that sub- section (2) of Section 80A clearly provides that the deductions shall not ex .....

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t of goods or merchandise. Sub Section (1) of Section 80HHC as it stood then provides that the profit that an assesse Indian company engaged in the business of export of any goods or merchandise to which this section applies, there shall, in accordance with and subject to provisions of Section, a deduction of the profits derived by the assessee from such export of goods or merchandise be allowed in computing the total income of the assessee. Sub- section (3) sets out the manner in which the prof .....

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s to be allowed. But however, taking note of the provisions of Section 80A(2) referred to herein above, such deduction has to be restricted to the gross total income which in the present case is a sum of ₹ 19,78,94,900/-. But however, the respondents have restricted the said deduction only to ₹ 17,40,33,719/- by relying upon the provisions of Section 80AB. However, we find that once the income has been determined by applying the methodology as provided in Section 80HHC(3) of the said .....

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have to be effected for the purpose of computing the deductions under each of the respective sections specified in Part C of the said Act. As such, while computing the deduction under Sections 80HHB, 80HHC, 80HHD, 80I, 80IB, 80IA, 80IB etc., one would have to apply Section 80AB of the said Act. On perusal of Annexure A, we find that the deduction under Section 80HHC to which the appellant was entitled has been arrived at a sum of ₹ 19,92,49,981/- by the respondents themselves. In terms of .....

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A and 80O ( also a part of Chapter VI-A of the said Act ) viz. whether the deductions under these provisions are to be restricted to income under the head profits of business or to the gross total income in the case of Tridoss Laboratories (supra ), Eskay Knit India Ltd., ( supra ) and M/s. J. B. Boda ( supra ). All of them have taken a view that the cap for deduction is gross total income. This also leads support to the appellant's case. 10. Even on perusal of the judgment of the Division B .....

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equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. The section contemplates a deduction of an amount representing hundred per cent of the profits and gains derived from the eligible business in computing the total income of the assessee. The expression 'gross total income' is defined by section 80B(5), for the purposes of Chapter VIA., to mean the total income computed in accordance with the provisions of the Act before ma .....

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trict the expression to total income derived from an eligible business. Having regard to the provisions noted above, the submission which has been urged on behalf of the revenue cannot be accepted. 11. In the judgment of this Court in the case of M/s. J. B. Boda and Co. Pvt. Ltd., ( supra ), it has been observed at paras 2 and 3 thus : 2. The question sought to be raised in this appeal relates to the deduction under section 80-O of the Income Tax Act, 1961 ( Act for short ). The Tribunal has con .....

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esents business income. In other words, the income from interest and dividend shall not form part of the gross total income as defined under section 80B(5) of the Act. The submission is misconceived. If one turns to the definition of the 'gross total income under section 80B-5, it reads as under : 80B(5) gross total income means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter. 3. Considering the definition of the gross t .....

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#39;IT ( India) Ltd., dated 25.03.2010 has observed at para 3 thus : 3. Section 80-IA as it stood at the material time provided that where the gross total income of the assessee included any profits and gains derived from the eligible business, to which the Section applies, he would in accordance with, but subject to the provisions of the section, be allowed in computing the total income, a deduction from such profits and gains of an amount equal to the amount specified in sub section (5) and fo .....

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